AHDB European Market Survey

AHDB European Market Survey - 23 March 2012

Danish exports of fresh and frozen pork were five per cent higher in 2011 than the previous year at over
1.2 million tonnes.

Chinese pig prices fall back from record highs

China accounts for nearly half of global production and consumption of pig meat. It is largely self-sufficient
but, given the scale of the industry, small changes in production can have a significant impact on price.
During the summer of 2011, pig prices in China rose to record highs. Since then prices have fallen
steadily, except for a small rise in the run up to the Spring Festival in January, and are now less than five
per cent higher than their level a year ago. At their peak, in early September, the average pig price in
China was just over 20 yuan per kg liveweight, equivalent to 196p per kg. By early March, the price had
fallen to a little over 15 yuan (155p) per kg.

Pig meat is a staple food in China
and its price makes an important
contribution to the country’s
Consumer Price Index (CPI). Food
makes up around 30 per cent of
the CPI basket and pig meat
accounts for around a third of the
food portion or 10 per cent of the
total. Therefore, the rising prices
during 2011 contributed to high
levels of inflation, leading to
government intervention to open
up the import market (see EMS
12/06) and subsidise herd
expansion. As a result, annual
inflation fell below four per cent in
February 2012, although meat
prices were still 16 per cent higher
than a year earlier, including a similar rise for pork.

The key reason for falling prices is the expansion of the Chinese pig herd as a result of improved
profitability, government subsidies and warmer weather, which led to a lower incidence of disease
outbreaks this winter. Breeding sow numbers have risen through most of the year and USDA estimates that
they totalled 49.3 million head at the end of 2011, four per cent higher than a year earlier. As a result, pig
meat production during 2012 is forecast to be four per cent higher than in 2011 at 51.6 million tonnes.
The impact on imports is less clear but they are likely to be lower than in 2011. Increased production will probably mean that average prices during 2012 will be lower than in 2011, with one major processor
predicting a fall of between 15 and 20 per cent.

The Chinese government has recently released its 12th five-year development plan for agriculture. The
plan aims to increase Chinese pig meat production by six per cent by 2015. It also sets out goals to
modernise the industry and improve productivity. The intention is to move away from China’s
dependence on small ‘backyard’ producers, which cannot meet efficiency and sustainability requirements.

Contrast in Dutch and Danish pork exports

Danish exports of fresh and frozen pork were five per cent higher in 2011 than the previous year at over
1.2 million tonnes. This growth in exports mainly reflects a four per cent increase in Danish pork
production over the same period and some increase in export demand, with the average export price up
four per cent. Trade with other EU Member States increased by three per cent year on year; pork exports
to Germany and Italy were up seven per cent and three per cent respectively. In contrast, shipments to the
UK were five per cent lower. Danish exports to non-EU markets grew by ten per cent over the year but
they still only accounted for 29 per cent of trade. Strong demand meant that shipments to China and South
Korea grew tremendously year on year, counteracting falls in trade with Japan, Australia and the US.

In contrast, Dutch exports of fresh and frozen pork fell marginally in 2011, compared with 2010, despite a
rise of two per cent in production. Trade with other EU Member States fell by four per cent year on year,
whereas exports to non-EU markets increased by 20 per cent to make up 17 per cent of the total.
Shipments to Germany and Italy fell significantly over the year, down by 25 per cent and 10 per cent
respectively, as the Netherlands lost market share to Denmark. However, there was strong growth in trade
with Poland, because of domestic shortages, and Spain. South Korea, Hong Kong and Russia were the
main contributors to the rise in non-EU exports. The average export price increased six per cent year on
year. By value, Dutch exports to non-EU markets increased by 30 per cent.

Danish exports of bacon were up by two per cent in 2011 compared with year earlier levels at 101,100
tonnes, with shipments to the UK, the main market, also up two per cent. Dutch bacon exports on the
other hand fell by thirteen per cent to 114,000 tonnes, as exports to the UK decreased by 18 per cent over
the year.

Danish live pig exports rose by two per cent between 2010 and 2011 to 8.9 million head. Weaner
exports, which accounted for almost 95 per cent of all trade, increased by eight per cent over the year.
There was strong demand for Danish weaners from Poland with exports increasing by 86 per cent year on
year. This came as a result of a shortage of locally-bred pigs as many Polish breeders left the industry or
switched to finishing. Weaner shipments to the main German market were little changed. However,
slaughter pig exports to Germany, the dominant market, fell by 60 per cent.

Live exports (excluding breeding pigs due to an error with the data) from the Netherlands fell to 9.0 million
head, down by over 17 per cent compared with 2010. Slaughter pigs saw the biggest fall in trade, with
exports down 28 per cent year on year, on the back of considerable decreases in shipments to Germany
and Hungary. Exports of weaners were down by six per cent, with falls in trade to Germany and Poland.